Climate Change, Drought, and Agricultural Production in Brazil

Climate change is likely to impact the occurrence of natural disasters such as drought. This paper calculates a standardized precipitation evapotranspiration index (SPEI) and uses it to analyze the frequency, duration and severity of drought in Brazil (1901-2020). Second, the study uses annual panel data to estimate the causal effects of drought on agricultural production (1974- 2019), and calculates the distribution of impacts across municipalities. Third, the paper compares annual panel and long difference estimates to shed light on adaptation/intensification over a longer period. Finally, by combining the panel estimates with seven CMIP6 global climate models, the study provides a range of projections for drought impacts (2025-2075). Results indicate that drought severity increased substantially in the second half of the 20th century and again in the 2010s. Estimates show that ten percent of the time droughts reduced municipal production by about 25% or more, with considerable spatial heterogeneity. Long difference estimates indicate intensification in response to more extreme droughts, and (statistically insignificant) adaptation at the median. A substantial risk to agricultural production is identified in the 21st century, especially under more pessimistic global warming scenarios, with annual losses rising to over 35% by 2075. Policy implications are discussed.